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USD Steady Amid Strong Data Ahead of Payrolls on Friday

Published September 1, 2016
  • USDCAD is once again testing the mid 1.3100's this morning following another solid set of data from the US
  • Oil prices remain under pressure following yesterday's disappointing inventory data from the EIA with WTI down -0.7% to $44.40
  • Jobless claims for the last week of August came in at 262K putting the four-week average for August at 263k with each week beating forecast
  • The 12-week average for the June – Aug period was also 263K per week and the 3-month average for Non-Farm Payrolls was 190k per month
  • Thus, it appears that the consensus for a 180k print tomorrow is appropriate and takes into account the historical weakness observed in labour markets during August
  • The US also reported this morning that labour costs during Q2 were revised higher to a 4.3% increase from 2.1% previously 
  • This supports the recent hawkish rhetoric from the Fed but they will still need a big jobs number on Friday in order to confirm their bias to hike rates this year
  • Highlighting how important Friday's jobs number is for the Fed, the USD index has run into key resistance right at its 200DMA after making strong gains over the past few weeks (Chart 2)…
  • …while US rates have stalled recently after a strong showing since July, during which the 2-year yield rose 41.89% and the 10-year yield rose 14.7% (Chart 3)
  • For the front end of the curve to keep steepening, we will need to see continued progress not just in labour markets but in wages, consumer confidence and business investment as well, otherwise the Fed will likely be more comfortable on the sidelines
  • For tomorrow, a number above 225k brings a September hike into play and thus should keep the USD bid against CAD
  • A print sub 150k would certainly put any rate hike ambitions on the sidelines for the foreseeable future 
  • With so much riding on Friday's numbers, volatility is expected to be very high with lots of opportunities on both sides of the market

Charts: (1) USDCAD above 1.3100 targets the 200 DMA.  (2) USD Index runs into resistance. (3) US rates stall after stellar run. (4) Economic Calendar.